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World Class Payment Infrastructure for PRD Metropolis

Explore the need for efficient cross-border payment methods in the PRD Metropolis and how e-money can facilitate small-value transactions within the area. Learn about the current e-money system in Hong Kong and its potential for expansion.

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World Class Payment Infrastructure for PRD Metropolis

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  1. Bauhinia Summit on “Creating a World Class PRD Metropolis” cum The Second Pearl River Forum Financial Infrastructure for Metropolitan Living Area: e-money for Cross-Border Payments Mr Norman T.L. Chan Chief Executive, Hong Kong Monetary Authority 26 January 2010

  2. 9 Cities and2 Special Administrative Regions Area 55,800 km2 Resident Population 55.28 mn GDP USD 673.2 bn GDP per capita USD 12,178 Pearl River Delta (PRD) Metropolis Sources: Guangdong Yearbook, Hong Kong Yearbook, Macao Statistics and Census Service, Macao Yearbook; 2008 figures. 2

  3. World Class Metropolises The London Metropolis The Tokyo Metropolis The New York Metropolis New York City+Northern New Jersey+Long Island +Southwestern Connecticut Area: 33,483 sq. km. Resident population: 28.71 mn GDP: USD 1,614.2 bn GDP per capita: USD 56,227 City of London+11 Neighbouring Counties Area: 11,427 sq. km. Resident population: 14.6 mn GDP: USD 677.7 bn GDP per capita: USD 46,418 Tokyo+Kanagawa+Saitama+Chiba Area: 13,508 sq. km. Resident population: 32.56 mn GDP: USD 1,655.6 bn GDP per capita: USD 50,849 3 Sources: Bauhinia Foundation Research Centre; 2007 figures.

  4. What is a World Class Metropolis 1. A cluster of vibrant and mutually interactive cities capable of achieving synergy 2. Smooth flow of factors of production - goods, talents, capital and information 3. Sharing a common living area Challenge for the PRD region and Hong Kong － to develop a closely linked and highly interactive metropolitan living area within the framework of “One Country, Two Systems” 4

  5. Payment for Spending within the Metropolitan Living Area Methods of Payment Large Value banknotes, remittances, cheques, credit cards, debit cards Small Value banknotes, coins, credit cards, debit cards, electronic money 5

  6. One Country, Two Systems; One Country, Two Currencies Cross-Border Small-Value Payments within the Metropolitan Living Area • Banknotes and coins are very inconvenient for cross-border purchases • Credit or debit cards are inefficient payment means for small-value purchases • The use of e-money is convenient for people within the metropolitan living area in making cross-border payments • Mutual use and access of e-money is an important financial infrastructure 6

  7. Small-Value Payments Means in Hong Kong Convenience (Storage/ Giving changes) Security Public Acceptance Coverage Coins 1 5 1 1 Small-denomination notes 1 4 1 1 Credit/debit cards 3 3 3 4 An ideal electronic money system 1 1 1 1 1 1 1 1 “1” : best, “5” : worst 7

  8. Avg daily transaction value (HK$10Mn) (left axis) Avg daily no of transaction (Mn) (right axis) Overview of e-Money in Hong Kong Currently there are over 20 million Octopus cards in circulation No. of daily transactions processed exceeds 10 mn Launched in 1997, Octopus card system became the e-payment system for public transport Value of daily transactions exceeds HK$90 mn Average value of transaction is HK$9 (public transport: HK$7; retail spending: HK$22) Scope of service has steadily expanded to small-value retail payments 8 Source: Octopus Cards Ltd.

  9. The Octopus card is extensively used in Hong Kong, with approximately 56,000 readers covering 3,000 service providers across different businesses, including public transport and retail shops (e.g. convenience stores, fast food outlets, carparks and vending machines). HK$1.1bn HK$17.1bn HK$12.8bn HK$22.8bn Overview of e-Money in Hong Kong 2002 2009 9 (Outstanding store value: HK$1 billion) Source: Octopus Cards Ltd.

  10. 1 1 1 3 Comparing Small-Value Payment Tools in Hong Kong Convenience (Storage/ Giving changes) Public acceptance Coverage Security Coins 1 5 1 1 Small-denomination notes 1 4 1 1 Credit/debit cards 3 3 3 4 An ideal electronic money system 1 1 1 1 “1”: best, “5”: worst 10

  11. HKMA’s Policy Initiatives in the Development of e-Money in Hong Kong Promote Development Support Octopus’s expansion of retail payment network, facilitating it to become a form of e-money in Hong Kong • Octopus has 3 roles: settlement platform operator; card issuer; merchant acquirer • Access to settlement platform made available to other card issuing banks; currently there are 2 Hong Kong banks which issue bank cards with Octopus function • Open up merchant acquiring business: in addition to Octopus Cards Ltd, there are currently 12 merchant acquirers Introduce Competition Prudent Oversight Ensure the Octopus electronic settlement platform operates safely and efficiently 11

  12. Cross-Border Usage of Hong Kong’s e-Money Very limited usage of Octopus across the border Accepted only at 11 fast food outlets in Shenzhen and 4 duty free shops in Lowu and Huanggang control points. Shenzhen Hong Kong 12

  13. 2008 No. of Visitors Tourist Spending Hong Kong residents visiting Mainland 7.84 mn HKD 718 bn Mainland residents visiting Hong Kong 16.86 mn HKD 692 bn Total 24.7 mn HKD 1,410 bn Interaction between Residents in Hong Kong and the Mainland Sources: National Tourism Administration of PRC ; Hong Kong Tourism Board. 13

  14. Guangzhou Yang Cheng Tong Foshan Tong / Guang Fo Tong Dongguan Public Transport IC Card Guangshen Railway Card MacauPass Shenzhen Tong Guangshen Railway Mudan IC Card Zhongshan Public Transport IC Card Current Status of Electronic Stored Value Cards in PRD Huizhou Public Transport Card Jiangmen Public Transport Card Zhuhai Public Transport Card • Mainly used in public transport with limited application in retail payments • Different technology platforms and modes of operation, offering limited mutual access and usage 14

  15. Strategy for Long-Term Development • Development, mutual access and usage of e-money in the PRD region and Hong Kong should facilitate the need for small-value payments within the PRD metropolitan living area PRD E-money in the Mainland (e.g. Shenzhen Tong, Bank Card) E-money in Hong Kong (e.g. Octopus Card) HK 15

  16. Proposal 1 Proposal 2 “Two-in-One Card” Common Card Reader Pilot Scheme in Shenzhen and Hong Kong Two feasible proposals: 16

  17. Shenzhen One card embedded with two chips Hong Kong Proposal 1 – “Two-in-One Card” • To develop a card with chips for both Shenzhen Tong and Octopus so that cardholders can pay for services and purchases conveniently and efficiently in the two places • “Two-in-One Card” is technically simple but needs to issue new cards and tackle value upload involving different currencies across the border 17

  18. Shops Shenzhen Bank Card Common card reader for: -Shenzhen Tong -Octopus -Bank Card Shops Bank Card Hong Kong Proposal 2 – Common Card Reader • To jointly develop a common card reader for the e-money in Shenzhen and Hong Kong (e.g. Shenzhen Tong, Bank Card and Octopus) to achieve mutual access and usage with scale • Common card reader is not a complicated technology, but involves software development and reader replacement, as well as value upload involving different currencies across the border 18

  19. Work Target • It is estimated that the “Two-in-One Card” can initially be implemented in Shenzhen and Hong Kong, within one year • The use of common card reader is a solution that can achieve mutual access and usage of e-money with scale. As it involves software development and replacing existing card readers, more time would be required for implementation. Relevant parties in the two cities have already started the discussion. • To further expand the mutual access and usage between Shenzhen and Hong Kong to the whole PRD region in the long run. 19

  20. 9 Cities and2 Special Administrative Regions Pearl River Delta (PRD)Metropolitan Living Area Complete realization of Mutual Use and Access of e-money 20

  21. Thank you! 21

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